Over the past decade, the government’s priority has been to address Egypt’s trade deficit, which stood at $3.27 billion as of September, up from a decade low of $1.19 billion in November 2021. A narrower trade deficit implies less new debt to finance imports and lower foreign-currency outflows, leading to moderate exchange-rate movements versus the dollar.  

One way to achieve that goal is to increase exports. In 2024, Egypt’s non-oil exports grew nearly 25%. The largest buyers of Egyptian goods are the EU, United States, and Arab nations.   

However, the export growth rate could suffer in 2026. The October 2025 World Trade Organization (WTO) Global Trade Outlook and Statistics report forecasts growth rates in the new year will decline more than earlier estimates. “Prospects for the second half of 2025 and 2026 are less optimistic,” the report said. “Possible signs of weakness in trade and manufacturing output have been observed in developed economies, including reduced business and consumer confidence and slower growth in employment and incomes.” 

The “imbalances” dilemma  

Running bilateral trade deficits “has long been a concern for policymakers, prompting calls for corrective trade measures,” WTO said. At their core, negative trade balances reflect a society “consumes more than it produces.”  

To overcome this issue in 2025, the world’s largest economy and second-largest trader, the United States, adopted protectionist policies to defend domestic companies. Joining the foray were the EU (with tariffs on Asian trading partners, particularly China) and Arab nations (Morocco, in December, imposed tariffs of 74%-92% on Egyptian plastics).  

The WTO said tariffs generally create new problems for trading partners and, in case of the U.S. or EU, the fallout will eventually spread to other countries. “Tariffs can alter sectoral trade patterns, reducing the deficit in a targeted sector at the expense of other sectors,” the report said.“They can also distort bilateral flows, narrowing the deficit with a targeted partner while widening it with others.” Lastly, industrial policy could suffer, as no single industrial sector (manufacturers and their suppliers) can meet all its needs from a single country.  

Trade 2025, 2026 

In the first half of 2025, the WTO reported global merchandise and commercial services trade grew 6% and 9%, respectively, year-on-year. “Several factors contributed to this robust trade expansion, including frontloading of imports in North America in anticipation of higher tariffs, favorable macroeconomic conditions (disinflation, supportive fiscal policies, strong growth in emerging markets), and a surge in demand for AI-related goods,” the report said.  

However, the WTO said it couldn’t determine how much of that boost was due to macroeconomic “push” factors and how much was due to U.S. businesses stocking up on foreign-made goods in the first half of 2025, anticipating price increases from anticipated tariffs.  

The second half of 2025 saw trade growth decline compared to the first half. “With higher tariffs now in place and trade policy still highly uncertain, frontloading of purchases is expected to unwind as accumulated inventories are drawn down,” noted the WTO. 

By the end of 2025, the global growth rate of merchandise trade will be 2.4% year-on-year (the WTO’s earlier forecast was 0.9%). In 2026, it will increase only 0.5% (the earlier forecast was 1.8%).  

The report added that 2025’s “frontloading” activity was so significant that, combining 2025 and 2026, the global trade growth rate forecast would be 2.9% by the end of 2026, compared to an earlier 2.3% forecast. 

The “inventory” factor 

The most significant factor influencing global trade growth rates in the second half of 2025 through 2026 will be inventory levels. “Stocks increased by around 25% after the COVID-19 pandemic, with a move from just-in-time to just-in-case delivery and the growth of e-commerce potentially resulting in permanently higher inventory levels.” 

That was evident from “a surge in demand for warehouse space in tandem with proposals to increase tariffs,” the WTO said. “This increase in demand has been most pronounced in … foreign trade zones (FTZs) and bonded warehouses.” 

That development is risky, as “a build-up in inventories would lead to a correction thereafter,” the WTO report said. “The unwinding could drag several economies into recession later in the year.” 

Another issue highlighted was that “holding bigger inventories beyond their optimum level adds costs for firms,” thereby raising prices worldwide. “The inventory holding cost is typically estimated to be 16% [to] 20% of the item cost per year,” the report said.  

Eventually, this factor might be temporary as companies adjust to enhance inventory planning, resulting in “a reduction in shocks to inventories” and ultimately “a reduction in the volatility of output” as global uncertainties decrease, the report said.  

The unpredictable variable will be U.S. foreign policy under President Donald Trump, as “tariff uncertainty … disrupts these fundamentals,” the report noted. 

Trade policy impact 

With increased talk about implementing protectionist policies, the WTO report analyzed the effectiveness of using “tariffs to eliminate sectoral or bilateral deficits.”  

A simulation the report ran showed that to eliminate the U.S. merchandise deficit with Asia, “tariffs would need to be raised by around 40 percentage points.” This move “would also increase trade deficits with other regions,” such as Europe, the WTO said. “Moreover, the policy would have significant economic costs, including a reduction in North America’s GDP of about 0.8%.” 

The report also ran a scenario where the U.S. imposes tariffs on all trading partners. “The simulations show that eliminating the merchandise trade deficit would require an across-the-board tariff increase of about 45 percentage points.”  

In that case, “the services surplus would decline proportionally and turn into a deficit. This policy would also entail greater economic losses than the bilateral case, reducing North America’s GDP by around 1.5%.” 

Macroeconomy policy 

The other option the WTO report highlighted for addressing trade imbalances was “macroeconomic policies.” The simulation focused on what would happen if saving rates change — “a stylized way to reflect the combined impact of fiscal policy, taxation, financial regulation, and other structural factors,” the WTO explained. 

Results showed “North America’s [goods plus services] trade deficit could be eliminated through a modest realignment of global saving behavior. A 2.5 percentage point increase in North America’s gross savings-to-GDP ratio, matched by a corresponding decline in the main surplus regions of Asia and Europe, would be sufficient to close the aggregate trade gap.” 

The report stresses that, unlike tariffs, governments using macroeconomic policies to address trade deficits simultaneously need “a larger services surplus and a narrowing [of the] goods trade deficit.” That is because “Macroeconomic rebalancing through changes in saving can eliminate aggregate trade imbalances, but may not fully resolve sector-specific imbalances.”  

Strength via unity 

Ultimately, the WTO report stressed, trade and macroeconomic policies need to work in tandem, as “tariffs can affect savings behavior” by making goods less affordable, lowering demand and corporate profits, thereby increasing savings. 

However, the WTO warned governments should tread carefully when addressing trade imbalances. “A fundamental principle of economic policy design is that each distortion should be addressed with the instrument that targets it most directly.” 

This means governments need to accurately identify the causes of trade deficits. “Trade distortions are best addressed with trade policy, while macroeconomic imbalances are more effectively handled with macroeconomic instruments,”  the report said. “Using one to address the other is not only inefficient, it may also have unintended consequences.”